Most Insurers Use a Controversial Differential Pricing Practice, According to a Central Bank Report

THE CENTRAL BANK has found that the controversial practice of differential pricing is used by the majority of insurers in the Irish market, leading customers with similar risks to pay different premiums.

In a new interim report, the regulator found that a number of pricing practices were identified that led customers with similar risk and cost of service to pay different premiums for reasons other than risk and cost of service.

The practice was found in the home insurance and private auto markets. There are significant differences between what different customer groups pay relative to their expected cost.

The longest-serving customers were found to pay the most, suggesting a loyalty penalty and highlighting the importance of comparing prices.

Insurance providers failed to demonstrate taking into account how these pricing practices may affect certain groups of consumers differently.

Research by the bank found that consumers show a clear preference for sticking with an existing insurance provider.

They also often shop around with other insurance providers to help negotiate a better price with your current provider, rather than switch.

The report also found that most consumers have limited knowledge of how insurance operates, leading to a tendency to believe that it is easier to stay with a current provider than to switch.

The legal requirements associated with insurance mean that consumers do not view it as a discretionary purchase and it is often viewed in largely negative terms. This results in a lack of confidence and a lack of interest.

The Central Bank found that tiered prices can be associated with some benefits for consumers, as well as costs.

The bank’s review began in January and is expected to be completed in 2021. Finance Minister Paschal Donohoe said it is important to let the central bank complete its work before deciding how best to proceed.

“Therefore, I would caution against making instinctive decisions based solely on this Interim Report, as doing so may have unintended consequences,” the minister said.

Insurance Ireland, which advocates for the industry, said the review underscores the importance of engaging with insurance providers and intermediaries to get the best deal and make purchases regularly.

“Our members are already in the process of making changes to improve transparency where appropriate. They have been actively working with the Central Bank and expect continued constructive engagement during the remainder of the review, ”he said.

Seán Fleming, the Minister of State responsible for the insurance industry, will meet with Insurance Ireland tomorrow to discuss the findings of the interim report. Fleming said he will “insist on the need for insurers to treat their clients with fairness and respect.”